10 Crucial KPIs You Should Be Tracking For Your Hospitality Business

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Hospitality might be a dynamic industry, but it isn’t impossible to predict future opportunities and prepare accordingly.

The digitalization of the hospitality sector means that your typical customer will interact with a variety of digital touchpoints while planning, making reservations, or enjoying your services. And at every touchpoint, they generate data, signaling what lies ahead.

Managers must read the data effectively to be able to make accurate forecasts and rejig capacities.

Fortunately, historical data and sophisticated hospitality analytics is an effective match. The insights are so accurate that hotel companies that can adopt data-driven decision-making can achieve a 55% competitive edge over their peers.

But how do you sift good, relevant data from all the information “noise” generated every day? After all, the GIGO principle (garbage in, garbage out, i.e., poor quality data inputs or an overly broad dataset will yield equally poor results) applies to hospitality. It’s only by tracking specific KPIs most relevant to a line manager’s business that you can obtain actionable insights.

At Toucan Toco, we work with some of the world’s major hospitality chains such as Elior, Sodexo and Eden. Here are the top ten key performance indicators (KPIs) that proved game-changing for their success.

Which hotel KPIs should you monitor?

1. GOP

GOP or Gross Operating Profit is an excellent indicator of business health for a particular period. The formula for GOP is as follows:

Gross Operating Revenue – Gross Operating Expense = GOP

In itself, GOP can be too broad a KPI to act on, which is why you need GOP drill-down for each of your hotels’ different functions. Hospitality managers should keep an eye on GOP for food & beverages (F&B) services, hotel spaces (accommodation & events), marketing, distribution, etc.

An important sub-KPI to remember is GOPAR or Gross Operating Profit Per Available Room. GOPAR gives you visibility into the value of your room at any given time, considering each room as an individual asset.

Measuring GOP can help you:

  • Prevent expenses from crossing revenue, ensuring that there is a sustainable margin
  • Monitor a loss period to plan for profitability during the rebound
  • Understand investment leakages to offset via other revenue sources

2. ADR

ADR or Average Daily Rate is a granular KPI, pertaining only to accommodation. It measures the average revenue you earn by renting out a room for occupancy in one day. If you multiply ADR by your occupancy rate, you arrive at the total revenue per available room.

The formula for ADR is as follows:

Total room revenue earned in a day ÷ the number of occupied rooms = ADR

This KPI has several benefits, such as:

  • Indicating true accommodation profitability when room occupancy is low
  • Alerting hoteliers to unsustainable room rates
  • Highlighting low occupancy, which could be leading to investment leakage

 

 

3. RevPar

RevPar (or RevPAR) of revenue per available room is closely linked to ADR. Here is the formula for calculating it:

ADR x room occupancy rate = RevPar

RevPar is an essential KPI as it tells you how much of your GOP is generated by accommodation. After all, the hotel business is a combination of two assets – real estate and operations – and RevPar shines a light on the first elements’ profitability.

By measuring RevPar regularly, you can:

  • Plan for room repartitions to optimize occupancy
  • Make smarter decisions around long-term property investment
  • Compare RevPar across sites to offer the best service mix

4. Occupancy rate

This simple but handy metric tells you how popular your hotel really is, indicating customer sentiment. A high occupancy rate means your room inventory is well-matched with market demand, so there are no sunk costs. The formula for occupancy rate looks like this:

(Number of occupied rooms ÷ the total number of rooms in a property) x 100 = Occupancy rate

Guided by this KPI, you can:

  • Compare multiple sites to flag low occupancy rates and analyze root cause
  • Invest in non-accommodation services to tide over a period of low occupancy
  • Tweak promotions and offers to improve room occupancy

5. CPOR

CPOR or Cost Per Occupied Room measures how much you’re investing in each room – covering tangibles such as linen, power, plumbing, etc., as well as service costs. You can use CPOR in conjunction with other metrics like RevPar to contrast your expenses with a room’s profitability.

In other words, CPOR shows how well you are able to optimize each room’s real estate. Its formula is as follows:

Total costs incurred by the rooms department ÷ total number of rooms sold = CPOR

Measuring CPOR allows you to:

  • Identify efficiencies or inefficiencies in room sales
  • Keep a check on cost variances over time
  • Prevent expenses beyond a specific threshold for low occupancy rooms

 

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Which F&B KPIs should you monitor?

6. RevPASH

RevPASH or Revenue Per Available Seat Hour is the F&B equivalent of RevPar. It indicates the utilization and revenue generation every hour per available seat in a hotel’s various F&B outlets. The formula for RevPASH is as follows:

Total outlet revenue ÷ (total number of seats x opening hours) = RevPASH

You can replace the hour in RevPASH with day, month, or year to study more long-term trends.

RevPASH helps you unlock these benefits:

  • Smarter labor scheduling to meet peak demand hours
  • Procurement planning as per revenue patterns
  • Marketing intervention to plug low RevPASH hours

7. Cost of goods sold

Costs of goods sold (COGS), also known as operating costs or operating expenses (opex), encapsulates everything that you spend on to keep an F&B outlet up and running. COGS includes both fixed and variable costs – like the cost of renting furniture, which is fixed, or power bills, which are variable.

In some cases, the cost of goods sold is considered to be the pure-play cost of procuring materials and tangibles in order to drive F&B product sales.

You can calculate COGS as a percentage using this formula:

((Beginning inventory ÷ purchases) – ending inventory) ÷ total sales = COGS

This will tell you exactly how many pence are going into every pound of sales that an F&B outlet earns. Its benefits are as follows:

  • Points out any inefficiencies or bottlenecks in the procurement chain
  • Suggests where you need to speed up inventory movement
  • Predicts possible waste if COGS is too high, meaning inventory isn’t fully utilized

 

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8. Menu item profit and popularity

This is perhaps the most important metric for mid-to-long-term F&B decisions. An analysis of profitability and popularity by product will tell you which elements of your F&B fare are working and which aren’t.

The formulas for these two KPIs are:

Listed/menu price of a product – product COGS = menu item profitability

 

(100% ÷ number of products in the menu category) – ((specific product sales ÷ total sales in menu category) x 100) = menu item popularity, where the lower the metric, the more popular the product

Let’s say there are five products in a menu category (e.g., appetizers) – so the average or expected popularity of each product would be 100% ÷ 5 = 20%.

Now, imagine appetizer no. 1 makes up 22% of total appetizer sales. 20%-22%=-2, making appetizer no.1 extremely popular. The lower the metric is in value, the more popular the product.

These KPIs are helpful for menu engineering, enabling the following benefits:

  • Eliminating unpopular or unprofitable products
  • Anticipating hiring needs to re-envision menu strategy
  • Planning seasonal menu rotations to stay ahead of the competition

9. Food and beverage sales per guest and per period

The sales per guest/per period KPI indicates how efficiently inventory is moving on a daily basis. While profit margins aren’t considered in this formula, average sales across guests or time periods by sheer volumes is a good measure of operational efficiency.

You can calculate this KPI using a simple formula:

Total F&B sales ÷ total occupied seats per day/month/year = F&B sales per guest per period

The benefits of monitor this metric are plenty:

  • Reducing investment in highly perishable raw material in non-peak periods
  • Creating bundled offers and promotions to boost sales per customer/seat
  • Planning bulk F&B events like buffets based on estimated sales per guests

 

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10. Food wasted per food purchased

Food waste is a massive problem, not just from a cost standpoint, but also for a hotel’s carbon footprint. You can calculate total food wasted per food purchase by using the following formula:

(Total food wasted ÷ beginning inventory) x 100 = food wasted per food purchase

It is useful to further breakdown this KPI into sub-categories such as waste during food preparation, spoilage, and waste from customer plates. The benefits of this KPI include:

  • Insights into an F&B outlet’s carbon footprint and sustainability
  • Inefficiencies highlighted, such as easily perishable raw materials that are low on profitability
  • Marketing, promotions, and non-profit initiatives to reduce waste

 

The right data can help the hospitality sector to optimize operations, lower costs, and drive revenues. This is particularly important in 2021, as it is a period of revenue recovery for the global hospitality sector. So, as you enter a promising rebound, avoid casting your net too far or too wide.

Zero-in on the specific performance metrics we discussed to make life simpler for your operations managers and your chances of business success stronger than ever before.

Eager to enhance your revenue calculations by factoring in essential hospitality data? Feel free to contact us for more information by clicking the button blow 😉

 

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